Empirical Evidence of the Impact of Senior Executive Ownership on Firm Performance: Classification of Investments in Equity Instruments under IFRS 9 as a Mediator Variable

The study examines the relationship between ownership by senior executives (OSE) and firm performance (FP). In addition, the study investigates the impact of the classification of investments in equity instruments (CIEI) according to IFRS 9 as a mediating variable on this relationship. The study uses earnings per share (EPS), company liquidity (LIQ), and share price (SP) as proxies of FP. The study also relies on the ratio of investments in equity instruments at fair value through other comprehensive income to total equity instruments at fair value (referred to in this study as EICR) as a proxy for decision making related to CIEI under IFRS 9. Using stakeholder theory, the study develops a framework for defining , analyzing, and forecasting the relationships between OSE, CIEI under IFRS 9, and FP. Two groups of hypotheses were developed to test the study framework: the first group contains hypotheses that tested the direct relationships between OSE, CIEI under IFRS 9, and FP; and the second group contains hypotheses that tested the indirect impact of OSE on FP when making decisions related to CIEI under IFRS 9 as a mediator variable. The study relies on structural equation modeling as an approach to testing the research hypotheses. The data were gathered from 105 companies listed on the Saudi Stock Exchange over a four-year period (2019-2022). The study data also underwent path analysis to examine the different effects between the study variables and the consistency of the models and to gather empirical evidence. This study presents two groups of empirical findings. The first group provides empirical evidence related to the direct relationships between OSE, CIEI under IFRS 9, and FP. This empirical evidence shows that there is no direct impact of OSE on EPS or SP, but OSE has a positive and direct impact on LIQ. There is also a negative and direct impact of OSE on EICR. Furthermore, EICR has a negative and direct impact on EPS, LIQ, and SP. The second group affords empirical evidence related to the indirect impact of OSE on FP when making decisions related to CIEI under IFRS 9 as a mediator variable. This empirical evidence reveals that there is a positive and full indirect impact of OSE on SP and EPS through the EICR as a mediator variable. In addition, there is a positive and partial indirect impact of OSE on LIQ through EICR as a mediator variable.